Cannons of Taxes

The cannons of taxes were introduced by Adam Smith in the eighteenth century in his famous book called ‘Wealth of Nations.’ There are four cannons of taxes.

1. Canon of Equity

The country should make such provision of the tax where all the persons are treated in a fair manner. Everyone should pay the taxes based upon their capacity or ability. For example, people earning between 2.5 lakh rupees to 5 lakh rupees will pay 5 percent of the tax from the income while people earning between 5 to 10 lakh rupees will pay 20 percent of the tax, and people below 2.5 lakh have to pay a nil amount. Therefore, the system is made in such a way that the tax is paid according to their capacity. There is an equal responsibility and the principle of social justice has been practiced. The progressive and proportional tax structure is in favor of this.

There are two types of equity that are covered under the canon of equity. First, the horizontal equity, the taxpayers with equal abilities need to pay the same amount of the tax. Second, vertical equity, taxpayers with a greater ability need to pay more tax. This is done so that everyone’s burden shall be equal.

2. Canon of convenience

This canon states that the tax should be levied in such a manner that it should be convenient to all the taxpayers. It should be convenient for all and not be ambiguous. For example, when GST was initiated, there were many ambiguities with the concept. Therefore, the government set up different camps to make the awareness and clear understanding of the concept to the people of the country.

3. Canon of economy

The tax system should always have an economical objective because it is the core of the taxation in the country. Therefore, the cost of the tax collection should be as minimal as possible. It should also be taken in mind that such an amount should also be able to fulfill the national growth and have the neutralization rate.

4. Canon of certainty

All the taxation, whether direct or indirect, ought to be certain and clear. It should be changed frequently and it will bring vagueness to the system. When such a structure is made the mode and method are deeply studied so that there is no ambiguity and problem faced by the taxpayer. Therefore, taxation policies should be precise.

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